France Exits EU’s Excessive Deficit Procedure

France has made adequate fiscal consolidation efforts to exit the EU’s excessive deficit procedure, the EU Council recently agreed, while calling on Hungary and Romania to adopt tax or expenditure measures to shore up their finances.

The findings came alongside the release of “country specific recommendations” for each of the 28 member states on tax and spending policy.

On France’s tax regime, the EU said despite recent reforms, including to lower the labor tax wedge, the French tax system “continues to be characterized by a high level of complexity, with tax expenditures, inefficient taxes, and taxes on production forming barriers to a well-functioning business environment.” It added that 192 taxes yield relatively little in revenue (less than EUR150m, or about USD175m, a year) and yet very few have been repealed since 2014.

For Romania, the EU focused on low levels of compliance, especially in relation to the value-added tax regime, calling for enforcement actions.

Finally, for Hungary it recommended further changes to shield some low-income groups who have benefited less from recent labor tax reforms. It added that the overall complexity of the tax system, coupled with the continued presence of sector-specific taxes, remains a weakness. It added that the absence of withholding taxes on outbound (i.e. from EU residents to third country residents) dividend, interest, and royalty payments made by companies based in Hungary may lead to those payments escaping tax altogether, if they are also not subject to tax in the recipient jurisdiction.